Kamal HassanFounder at Incmind, Director at Founder Institute

I've been an entrepreneur for 15 years, and an angel investor for ten years. I've raised >$10M in funds from over 50 investors. To see what I know check out my answers on Quora at https://www.quora.com/profile/Kamal-Hassan-1

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A typical rule of thumb would be that an established company sets aside around 15% of the outstanding shares at any point in time for employee options. Those get split up among employees based on their contributions.

Depending how key these VPs are relative to other employees you have (remember to give them something also) or expect to hire, you might give them 2-5% each.

This assumes that you are an established company. If one of the VPs is going to quintuple the size of the business, they might push for being more of a 'partner'.

There are three questions here:
- the strike price of the options
- the market value of the company
- how much those options are actually worth to the recipient

1. The strike price is the price people pay to exchange their options for shares. You can set any strike price you like: it's just a negotiable contract term. However, if the strike price is less than the market value of the shares, the options are taxable (which people tend to avoid), so you typically set the strike price at or above the market value.

2. The market value of the company is how much the company is worth. The celebrity of the founder is clearly a big part of it. If the company were sold, the acquirer would want the founder to lock in as part of the acquisition. So figure out the value a couple of ways:
(1) off standard profitability metrics: X times yearly profit and/or revenue vs. comparable companies
(2) off the acquisition price: with and without the founder and add the percentage chance the founder would go with it
(3) off recent transactions in the stock (what people pay for the stock is a great indicator of value)
These will give three different answers: pick some sort of average number, so you can justify your strike price.

3. What the options are worth to the recipient: remember they are only worth something if the recipient can exercise them for stock, and then sell the stock (or receive dividends) for more than the option's strike price. So figure out the probability of the company being sold above the strike price in the next X years, and what an weighted average expected sale price is for the company in the next few years (noting the founder's importance), and that's what the options are worth.

I hope that helps.

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